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Why Zoom Stock Zoomed on Wednesday

What happened

Shares of videoconferencing star Zoom Video Communications (NASDAQ:ZM) continued living up to their name Wednesday, zooming 5% through 2 p.m. EST as investors continued to digest a pair of big news items from yesterday.

So what

Zoom announced Tuesday that it plans to raise $1.5 billion in new capital from the sale of about 4.2 million new shares of its stock. Because Zoom will be diluting shareholders with this offering, you’d expect this news to depress the shares. Instead, the stock jumped 5.7% on Tuesday. But even a $1.5 billion share issuance only dilutes existing shareholders by about 1.4%, so it’s not really a big hit.

This morning, Zoom — citing higher demand — increased the offering to $1.75 billion, with 5.1 million shares sold (still only about 1.6% dilution).  

Zoom is also rising today because of the other news announced yesterday. The company said it has now sold 1 million Zoom Phone seats since the product launched two years ago. Investment bank Stifel Nicolaus called this a “significant milestone” and a reminder of the powerful addressable opportunity for Zoom, TheFly.com reported.

Image source: Getty Images.

Now what

Echoing that sentiment, this morning Morgan Stanley added that “the market has likely become a little too negative” on Zoom of late, especially with the coronavirus pandemic still rampant. As Morgan Stanley notes, at least 75 million people (and maybe as many as 100 million) have used Zoom at this point, and more could use it as the pandemic drags on. But Zoom has only ever gotten about 20 million of them to pay up for its services.

They’ve at least been exposed to its services, however, and that’s the first step to getting people to open their wallets. If Zoom manages to convert more of its users into paying subscribers over time, Morgan Stanley said, the company’s revenue stream could still grow by multiples from what it is today.

In short, Zoom is still a growth story, as its stock performance today proves.

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